UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30,
2012

OR

o TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from ____________ to ____________

Commission File Number: 000-53589

FLORIDIAN FINANCIAL GROUP, INC.

(Exact
name of registrant as specified in its charter)

Florida

20-4539279

(State
or other jurisdiction of incorporation or organization)

(I.R.S.
Employer Identification No.)

175
Timacuan Boulevard, Lake Mary, Florida

32746

(Address
of principal executive office)

(Zip
Code)

(407)
321-3233

(Registrants
telephone number, including area code)

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No o

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes x No o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

(Do not check if smaller
reporting company)

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x

At October 31, 2012,
6,177,842 shares of the Registrants Common Stock, $5.00 par value, were
outstanding.

1

FLORIDIAN FINANCIAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2012

The
SEC encourages companies to disclose forward-looking information so investors
can better understand a companys future prospects and make informed investment
decisions. This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, among others, statements
about our beliefs, plans, objectives, goals, expectations, estimates and
intentions that are subject to significant risks and uncertainties and are
subject to change based on various factors, many of which are beyond our
control. The words may, could, should, would, believe, anticipate,
estimate, expect, intend, plan, target, goal, and similar
expressions are intended to identify forward-looking statements.

All
forward-looking statements, by their nature, are subject to risks and
uncertainties. Our actual future results may differ materially from those set
forth in our forward-looking statements.

Our
ability to achieve our financial objectives could be adversely affected by the
factors discussed in detail in Part I, Item 2., Managements Discussion and
Analysis of Financial Condition and Results of Operations, and Part II, Item
1A., Risk Factors in this Quarterly Report on Form 10-Q, the following
sections of our Annual Report on Form 10-K for the year ended December 31, 2011
(the Annual Report): (a) Introductory Note in Part I, Item 1. Business,
(b) Risk Factors in Part I, Item 1A. as updated in our subsequent quarterly
reports on Form 10-Q; and (c) Introduction in Managements Discussion and Analysis
of Financial Condition and Results of Operations, in Part II, Item 7, as well
as:

§

Our ability to comply with
the board resolution and memorandum of understanding as required to be
adopted by our regulators, including the heightened capital ratios;

§

our ability to lower our
expenses;

§

the effects of our
decision to deregister our common stock from the Securities Exchange Act of
1934, as amended, and go dark;

the strength of the United
States economy in general and the strength of the local economies in which we
conduct operations;

§

the frequency and
magnitude of foreclosure of our loans;

§

our ability to
successfully manage liquidity risk;

§

the effects of the health
and soundness of other financial institutions, including the FDICs need to
increase Deposit Insurance Fund assessments;

§

our ability to comply with
the extensive laws and regulations to which we are subject;

§

inflation, interest rate,
market and monetary fluctuations;

§

our customers willingness
and ability to make timely payments on their loans;

§

increased competition and
its effect on pricing, including the effect of the repeal of the prohibition
on paying interest on demand deposits, on our net interest margin;

§

fluctuations in collateral
values;

§

effect of changes in the
stock market and other capital markets;

§

the effects of harsh
weather conditions, including hurricanes;

§

the effects of man-made
disasters;

§

our ability to support our
overhead expenses;

§

changes in the securities
and real estate markets;

§

technological changes;

3

§

changes in monetary and
fiscal policies of the U.S. Government;

§

the effects of security
breaches and computer viruses that may affect our computer systems;

§

changes in consumer
spending and saving habits;

§

changes in accounting
principles, policies, practices or guidelines;

§

anti-takeover provisions
under federal and state law as well as our Articles of Incorporation and our
bylaws;

§

other risks described from
time to time in our filings with the SEC; and

§

our ability to manage the
risks involved in the foregoing.

However,
other factors besides those listed above and in the section captioned Risk Factors
or discussed elsewhere in this Report also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of
all potential risks or uncertainties. These forward-looking statements are not
guarantees of future performance, but reflect the present expectations of
future events by our management and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. Any forward-looking statements
made by us speak only as of the date they are made. We do not undertake to
update any forward-looking statement, except as required by applicable law.

Nature of business: Floridian Financial Group,
Inc. (the Company) is a registered bank holding company formed to organize
and own 100% of its subsidiary banks, Floridian Bank and Orange Bank of Florida
(collectively referred to as the Banks). The Company was incorporated in
2005, and became operational as a bank holding company once Floridian Bank
opened. Floridian Bank is a state-chartered, federally-insured full-service
commercial banking institution and presently conducts business from its
headquarters in Daytona Beach and branch offices in Ormond Beach, Palm Coast
and Port Orange, Florida. Orange Bank of Florida is a state-chartered,
federally-insured full-service commercial banking institution with its
headquarters in Orlando, Florida. The Company operates from its main office and
branch offices in Orange, Seminole, Lake and Citrus Counties, Florida.

Basis of Financial Statement Presentation: The
accompanying unaudited condensed consolidated financial statements include the
accounts of the Company and its Banks. Significant intercompany accounts and
transactions have been eliminated in consolidation. The accounting and reporting
policies of the Company conform to accounting principles generally accepted in
the United States of America and general practices within the financial
services industry. The accompanying interim period adjustments, which are
necessary for a fair presentation of the consolidated financial statements,
have been included. The results of operations for the nine months ended
September 30, 2012 are not necessarily indicative of the results which may be
expected for the year as a whole or any interim period. The interim period
consolidated financial statements and financial information included in this
quarterly report on Form 10-Q should be read in conjunction with the notes to
the consolidated financial statements included in the Companys annual report on
Form 10-K.

Use of estimates: In preparing the condensed
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses, deferred tax assets and the fair value of financial
instruments.

A summary of the Companys significant
accounting policies follows:

Comprehensive income (loss): Comprehensive
income or loss is comprised of the net income or loss from the consolidated
statement of operations and any items of other comprehensive income. The only
item of other comprehensive income for the Banks is the unrealized gain or loss
on the available for sale investment securities portfolio, net of tax.

Cash and cash equivalents: For purposes of
reporting cash flows, cash and cash equivalents include cash on hand, amounts
due from banks (including cash items in process of clearing) and federal funds
sold. Cash flows from loans originated by the Company and deposits are reported
net. The Company maintains amounts due from banks, which at times may exceed
federal deposit insurance limits. The Company has not experienced any losses in
such accounts.

Securities: Certain securities which
management has the positive intent and ability to hold until their maturity are
classified as held to maturity. Such securities are carried at cost, adjusted
for related amortization of premium and accretion of discounts through interest
income from securities.

Securities
available for sale which are used for asset/liability, liquidity and other
funds management purposes have indefinite holding periods and are accounted for
on a fair value basis with net unrealized gains and losses included in other
comprehensive income net of tax. Declines in the fair value of securities
available for sale that are deemed to be other than temporary are reflected in
earnings as realized losses. In estimating other-than-temporary impairment
losses, management considers: (1) the length of time and the extent to which
the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer including an evaluation of credit ratings,
(3) the impact of changes in market interest rates, (4) the intent of the
Company to sell a security, and (5) whether it is more likely than not the
Company will have to sell the security before recovery of its cost basis. If
the Company intends to sell an impaired security, the Company records an
other-than-temporary loss in the amount equal to the entire difference between
the fair value and amortized cost. If a security is determined to be
other-than-temporarily impaired, but
the Company does not intend to sell the security, only the credit portion of
the estimated loss is recognized in earnings, with the other portion of the
loss recognized in other comprehensive income. Amortization and accretion of
premiums and discounts are recognized as adjustments to interest income.
Realized gains and losses are recognized using the specific identification
method.

9

Floridian Financial Group, Inc. and
Subsidiaries

Note 1.

Nature of Business and Summary of Significant Accounting Policies
(continued)

Loans: Loans are stated at the amount of
unpaid principal balances, reduced by an allowance for loan losses and unearned
fees and costs. Interest on loans is calculated by using the simple interest
method on daily balances of the principal amounts outstanding unless loans are
classified as nonaccrual loans. The accrual of interest is discontinued when
future collection of principal or interest in accordance with the contractual
terms becomes doubtful. When interest accrual is discontinued, all unpaid
accrued interest is reversed against interest income. Accrual of interest is
generally resumed when the customer is current on all principal and interest
payments and has been paying on a timely basis for at least six months.

Accounting
standards require the presentation of certain disclosure information at the
portfolio segment level, which represents the level at which the Company
determines its allowance for credit losses. The Company has four reportable
loan segments: Commercial, Commercial Real Estate, Residential Real Estate, and
Consumer. Segments are determined based on the products and services provided
and the type of customer served. See Note 4 for a breakdown of loans by
segment.

Commercial Loans: All corporate and business
purpose loans and lines of credit that are not real estate related are
classified as commercial loans. These loans are generally secured by business
assets including accounts receivable, inventory, and equipment and may
incorporate a personal guarantee. Terms on commercial loans are generally for five
years or less with most lines of credit written on an on-demand-basis. The
majority of commercial loans have a floating interest rate tied to a published
index. As of September 30, 2012, commercial loans represented 14.0% of the loan
portfolio.

Commercial Real Estate Loans (CRE): CRE
represents business purpose loans that are real estate related and secured by
real estate. CRE loans are reviewed primarily as cash flow loans and
secondarily as loans secured by real estate. CRE loans typically involve higher
loan principal amounts and the repayment is generally largely dependent on the
successful operations of the real property securing the loan or the business
conducted on the property securing the loan. CRE loans may be adversely
affected by conditions in the real estate markets or in the general economy
than other loan types. As of September 30, 2012, 78.0% of the loan portfolio
was concentrated in CRE loans.

Residential Real Estate Loans (RRE): RRE
represents all consumer purpose loans collateralized by one to four family
dwellings. RRE loans generally have terms of less than five years and are
written on a fixed rate basis. As of September 30, 2012, 2.7% of the portfolio
was classified as RRE.

Consumer Loans: All non-business purpose loans
are considered consumer loans. Consumer loans consist of home equity lines of
credit, automobile loans, overdraft loans, loans secured by deposits and
securities, and unsecured personal loans. Home Equity represents all consumer
open end lines of credit secured by one to four family lines of credit.
Consumer loans represent any consumer purpose loans or lines of credit not
secured by real estate. As of September 30, 2012, consumer loans represented
5.3% of the portfolio.

Within each
segment, the Company monitors and assesses the credit risk in the following
classes, based on the risk characteristic of each loan segment: Pass, Special
Mention, Substandard, Doubtful, and Loss. Within the Commercial and CRE
portfolio risk grades are assigned based on an assessment of conditions that
affect the borrowers ability to meet obligations as outlined in the loan
agreement. This process includes an in-depth review prior to loan approval and
throughout the life of the loan. The analysis of the borrower includes a review
of financial information, credit documentation, public information, past
experience with the borrower, and other information that may be available
specific to each borrower. The review also includes debt service capabilities,
actual and projected cash flows, and industry and economic risks. Underwriting
of RRE, consumer, and home equity loans and lines of credit include an
assessment of the borrowers credit history and the ability to meet existing
debt obligations, as well as payments of principal and interest on the proposed
loan. Risk grades are reviewed annually on all large
credit relationships or on any credit where management becomes aware of
information that may affect the borrowers ability to fulfill contractual
obligations. See Note 4 for a breakdown of loans by class.

10

Floridian Financial Group, Inc. and
Subsidiaries

Note 1.

Nature of Business and Summary of Significant Accounting Policies
(continued)

Troubled Debt Restructuring: The Company
considers a loan to be a Troubled Debt Restructuring (TDR) when the debtor
experiences financial difficulties and a concession is provided such that the
Company will not collect all principal or interest in accordance with the
original terms of the loan agreement. Concessions can relate to the contractual
interest rate, maturity date, or payment structure of the note. As part of our
workout plan, the Company at times restructures loan terms to assist borrowers
facing challenges in the current economic environment. Loans classified as TDRs
include loans on nonaccrual, loans moving to nonaccrual, and loans on an
accruing status. The Company evaluates each individual borrowers financial
condition and prospects for repayment under the modified terms prior to
restructuring. The evaluation includes but is not limited to the borrowers
capacity and willingness to pay, past payment history, and any secondary
sources of payment.

As of
September 30, 2012, five loans totaling $15.6 million were classified as TDRs
with $6.3 million classified as nonperforming. As of December 31, 2011, ten
loans totaling $17.5 million were classified as TDRs with $971 thousand
classified as nonperforming.

Nonaccrual and Impaired loans: Borrowers who
have not made scheduled payments within 30 days of their due date are
considered past due. The Company has a formal review process for all past due
loans which includes a review of previous performance, collateral and future
cash flows. The Companys policy is to place all loans where interest and
principal has been delinquent for 90 days or more on nonaccrual status unless
the loan is well secured and in the process of collection. Loans operating on a
cash basis because of deterioration in financial condition of the debtor as
well as loans where the full collection of recorded interest or principal is
not expected are also placed on nonaccrual status regardless of delinquency
status. When loans are placed on nonaccrual status, future interest accruals
are discontinued and all unpaid accrued interest is reversed against interest
income.

Cash
collections on nonaccrual loans are credited to the loan receivable balance and
no interest income is recognized on those loans until the principal balance is
current. Nonaccrual loans, after a reasonable period of sustained repayment
performance (generally minimum of six months), are re-evaluated for possible
return to an accrual status. See Note 4 for a breakdown of the Companys loan
portfolio based on aging.

Impaired loans
are measured for impairment based on the present value of expected future cash
flows discounted at the loans original effective interest rate or, as a
practical expedient, at the loans observable market price or the fair value of
the collateral, net of selling costs, if the loan is collateral dependent. A
loan is impaired when it is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. On at least a quarterly basis, the Company reviews impaired
loans for any changes in the borrowers ability to repay the loan. Based on
this review, the Company may consider making modifications to the original loan
agreement.

Allowance for loan losses: The allowance for
loan losses (ALL) is established through a provision for loan losses charged
against operations. The allowance includes an unallocated component. The
unallocated reserve represents the uncertainty in inherent factors that cannot
be practically assigned to individual loan categories including the local
economy and the uncertainty related to historical loss rates applied against
loan risk-ratings. The Company believes the unallocated amount is warranted.
All commercial loans risk rated substandard or doubtful are considered impaired
and are reviewed on a quarterly basis to determine if a specific reserve needs
to be allocated.

Loans are
charged against the allowance for loan losses when management believes that the
loss is confirmed. The allowance is an amount that management believes is
adequate to absorb losses inherent in the loan portfolio, based on evaluations
of the collectability of loans, industry historical loss experience, current
economic conditions, portfolio mix, and other factors. During the second quarter of 2012, the
Company changed from a rolling 12-month to a rolling 24- month look back period
to evaluate and allocate loan losses in regard to the provision.

While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions.

11

Floridian Financial Group, Inc. and
Subsidiaries

Note 1.

Nature of Business and Summary of Significant Accounting Policies
(continued)

Loan Charge-Offs: All loan segments except
Consumer are charged off within 30 days from the date the loan is deemed
uncollectible. The recognition of the loss of loans or portions of loans occurs
as soon as there is a reasonable probability of loss. When the amount of loss
can be readily calculated, then the loss is recognized. In cases where an
amount cannot be calculated, a specific allowance for loan losses is estimated
and provided for.

Losses on
consumer credit card loans are taken as soon as possible and no later than when
the loan is 90 days delinquent. All other consumer loan losses are taken as soon
as possible and no later than when delinquency exceeds 120 days.

As a policy,
the Banks reverse accrued interest on loans placed on nonaccrual. If the
accrued interest being reversed was recorded in a previous calendar year and
the amount is material, the accrued interest associated with the previous
calendar year is charged off.

Credit related financial instruments: In the
ordinary course of business, the Banks enter into off-balance-sheet financial
instruments consisting of commitments to extend credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when they are funded.

Transfers of financial assets: Transfers of
financial assets are accounted for as sales only when control over the assets
has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been legally isolated from the Company and
any of its affiliates, (2) the transferee has the ability to sell or pledge the
transferred assets, and (3) the Company does not maintain effective control
over the transferred assets through an agreement to repurchase them before
their maturity or maintain effective control through a third-party beneficial
interest in the transferred assets, the ability to unilaterally cause the
holder to return specific assets, or have an in-the-money option held by a
transferor when probable that the transferor will repurchase the assets.

Other Real Estate Owned: Other real estate
owned (OREO) consists of property acquired through, or in lieu of, loan
foreclosures or other proceedings and is initially recorded at the fair value
less estimated selling costs at the date of foreclosure, which establishes a
new cost basis. Subsequent to foreclosure, the properties are held for sale and
are carried at the lower of cost or fair value less estimated costs of
disposal. Any write-down to fair value at the time of acquisition is charged to
the allowance for loan losses. Properties are evaluated regularly to ensure the
recorded amounts are supported by current fair values, and a charge to
operations is recorded as necessary to reduce the carrying amount to fair value
less estimated costs to dispose.

Income taxes: The Company accounts for income
taxes according to the asset and liability method. Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using the enacted tax rates applicable to
taxable income for the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date. Valuation reserves are established against certain deferred
tax assets when it is more likely than not that the deferred tax assets will
not be realized. Increases or decreases in the valuation reserve are charged or
credited to the income tax provision.

The Company
recognizes a benefit from its tax positions only if it is more-likely-than-not
that the tax position will be sustained on examination by taxing authorities,
based on the technical merits of the position. The tax benefits recognized in
the financial statements from such a position are measured based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement with a taxing authority that has full knowledge of all relevant
information.

The periods
subject to examination for the Companys federal returns are the tax years
subsequent to 2009. The periods subject to examination for the Companys
significant state return, which is Florida, are the tax years subsequent to
2008. The Company believes that its income tax filing positions and deductions
will be sustained upon examination and does not anticipate any adjustments that
will result in a material change in its financial statements. As a result, no
reserve for uncertain income tax positions has been recorded.

The Companys
policy for recording interest and penalties related to uncertain tax positions
is to record such items as part of its provision for federal and state income
taxes.

12

Floridian Financial Group, Inc. and
Subsidiaries

Note 1.

Nature of Business and Summary of Significant Accounting Policies
(continued)

Earnings per share: Basic earnings per share
is calculated by dividing net income (loss) by the weighted average number of
shares of common stock outstanding for each period presented. Options
outstanding at September 30, 2012 and 2011, to purchase 650 thousand and 645
thousand common shares, respectively, were not included in the computation of
diluted earnings per share for the three and nine months ended September 30,
2012 and 2011, because they were antidilutive.

Share-based compensation: The Company has a
stock option plan for its employees and for its directors, as more fully
described in Note 14 of our financial statements contained in our Annual
Report. The Company is required to recognize compensation cost relating to
share-based payment transactions, based on the fair value of the equity or
liability instruments issued, in its financial statements. Compensation cost
has been measured using the fair value of an award on the grant dates and is
recognized over the service period, which is usually the vesting period.

Reclassifications: Certain amounts in the 2011
financial statements have been reclassified for comparative purposes to conform
with the presentation in the 2012 financial statements. The results of these
classifications had no effect on net operations or shareholders equity.

New Accounting Pronouncements: In December
2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220):
Deferral of the Effective Date for the Amendments to the Presentation of
Reclassifications of the Items Out of Accumulated Other Comprehensive Income in
ASU No. 2011-05. This guidance delays the effective date of the disclosures
for only those changes in ASU No. 2011-05 that relate to the presentation of
reclassification adjustments to allow the FASB time to reconsider whether to
require presentation of such adjustments on the face of the financial statements
to show the effects of reclassifications out of accumulated other comprehensive
income on the components of net income and other comprehensive income. ASU
2011-12 allows entities to continue to report reclassifications out of
accumulated other comprehensive income consistent with the presentation
requirements in effect before ASU No. 2011-05. All other requirements in ASU
No. 2011-05 are not affected by ASU No. 2011-12. ASU No. 2011-12 is effective
for annual and interim periods beginning on or after December 15, 2011 and is
not expected to have a significant impact on our financial statements.

Note 2.

Cash and Due From Banks

The Banks are
required to maintain vault cash and reserve balances with the Federal Reserve
Bank based upon a percentage of deposits. These requirements were $2.0 million
at September 30, 2012 and $2.5 million at December 31, 2011.

13

Floridian Financial Group, Inc. and
Subsidiaries

Note 3.

Securities

The amortized
cost and estimated fair value of securities with gross unrealized gains and
losses follows:

As of September 30, 2012

(Dollars
in Thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Securities Available for sale

Debt Securities:

States & political subdivisions

$

5,914

$



$

87

$

5,827

U.S. Agency REMIC

36,068

72

322

35,818

U.S. Agency MBS

18,426

148



18,574

Total securities available for sale

$

60,408

$

220

$

409

$

60,219

As of December 31, 2011

Securities
Available for Sale

Debt Securities:

U.S. Government and federal agencies

$

13,385

$

305

$



$

13,690

States & political subdivisions

1,701

94



1,795

U.S. Agency REMIC

38,917

338

217

39,038

U.S. Agency MBS

18,683

18

88

18,613

Total securities available for sale

$

72,686

$

755

$

305

$

73,136

Securities
Held to Maturity

Debt Securities:

U.S. Government and federal agencies

$

1,002

$

11

$



$

1,013

Total securities held to maturity

$

1,002

$

11

$



$

1,013

At September
30, 2012 and December 31, 2011, government obligations with a carrying value of
$8.3 million and $20.6 million, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law. At September 30,
2012 and December 31, 2011, the carrying amount of securities pledged to secure
repurchase agreements was $5.2 million and $12.6 million, respectively.

14

Floridian Financial Group, Inc. and
Subsidiaries

Note 3.

Securities (continued)

The carrying
amount of debt securities by contractual maturity at September 30, 2012
follows:

(Dollars
in Thousands)

Within
1 year

After 1
year
through
5 years

After 5 years
Through
10 years

Over
10 years

Total

Available for sale, at fair value

States & political subdivisions

$



$



$

531

$

5,296

$

5,827

U.S. Agency REMIC

2,806

30,706

2,306



35,818

U.S. Agency MBS



9,835

6,969

1,770

18,574

Total

$

2,806

$

40,541

$

9,806

$

7,066

$

60,219

For the three
months ended September 30, 2012 and 2011, proceeds from sales, maturities, and
calls of securities available for sale amounted to $27.9 million and $12.8
million, respectively. Gross realized gains amounted to $419 thousand and $0,
respectively. There were no gross realized losses for the three months ended
September 30, 2012 and 2011.

For the nine
months ended September 30, 2012 and 2011, proceeds from sales, maturities, and
calls of securities amounted to $73.0 million and $23.6 million, respectively.
Gross realized gains amounted to $1.3 million and $0, respectively. There were
no gross realized losses for the nine months ended September 30, 2012 and 2011.

Information
pertaining to securities with gross unrealized losses at September 30, 2012 and
December 31, 2011 aggregated by investment category and length of time that
individual securities have been in a continuous loss position, follows:

September 30, 2012

Less Than Twelve Months

Over Twelve Months

(Dollars in
Thousands)

Gross
Unrealized
Losses

Fair Value

Gross
Unrealized
Losses

Fair Value

Total
Unrealized
Losses

Securities
Available for sale

Debt
Securities:

States & political subdivisions

$

87

$

5,826

$



$



$

87

U.S. Agency REMIC

188

21,559

134

6,204

322

Total securities available for sale

$

275

$

27,385

$

134

$

6,204

$

409

15

Floridian Financial Group, Inc. and
Subsidiaries

Note 3.

Securities (continued)

December 31, 2011

Less Than Twelve Months

Over Twelve Months

(Dollars
in Thousands)

Gross
Unrealized
Losses

Fair Value

Gross
Unrealized
Losses

Fair Value

Total
Unrealized
Losses

Securities
Available for sale

Debt Securities:

U.S. Agency REMIC

$

217

$

23,460

$



$



$

217

U.S. Agency MBS

88

14,536





88

Total securities available for sale

$

305

$

37,996

$



$



$

305

As of
September 30, 2012, the Companys security portfolio consisted of 40
securities, 24 of which were in an unrealized loss position. Four of the
securities had loss positions in excess of 12 months. The securities were
issued by U.S. government-sponsored agencies and are not considered impaired.
Approximately $54.4 million, or 90%, of the debt securities held by the Company
were issued by U.S. government-sponsored entities and agencies, primarily
Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has
affirmed its commitment to support. Because the decline in fair value is
attributable to changes in interest rates and illiquidity, and not credit
quality, and because the Company does not have the intent to sell these
securities and it is likely it will not be required to sell the securities
before their anticipated recovery, the Company does not consider these
securities to be other-than-temporarily impaired at September 30, 2012.

Note 4.

Loans and Allowance for Loan Losses

Loans were
comprised of the following:

(Dollars
in Thousands)

September 30, 2012

December 31, 2011

Commercial

$

40,111

$

44,833

Commercial
real estate

222,932

241,648

Residential
real estate

7,750

8,542

Consumer
loans

15,167

16,745

Total loans

285,960

311,768

Less:
Allowance for loan losses

7,830

6,566

Less:
Unearned fees

122

114

Net loans

$

278,008

$

305,088

16

Floridian Financial Group, Inc. and
Subsidiaries

Note 4.

Loans and Allowance for Loan Losses (continued)

Activity in
the allowance for loan losses is as follows:

For the Three Months Ended
September 30,

For the Nine Months
Ended September 30,

(Dollars
in Thousands)

2012

2011

2012

2011

Beginning
balance

$

7,678

$

7,715

$

6,566

$

8,010

Loan charge
offs:

Commercial



183



308

Commercial real estate

546

846

986

1,870

Residential real estate



37



391

Consumer and home equity





65

243

Total
charge-offs

546

1,066

1,051

2,812

Recoveries:

Commercial

1

5

12

96

Commercial real estate

591

6

759

166

Residential real estate

1







Consumer

1



24

3

Total
recoveries

594

116

795

265

Provision
for loan losses:

Commercial

(60

)

76

1

76

Commercial real estate

123

318

1,714

809

Residential real estate

6

141

(27

)

537

Consumer

29

15

56

295

Unallocated

6



(224

)

30

Total
provision

104

550

1,520

1,747

Ending
balance

$

7,830

$

7,210

$

7,830

$

7,210

Allowance /
Total Loans

2.7

%

2.3

%

2.7

%

2.3

%

Net
Charge-Offs / Average Loans

0.0

%

0.3

%

0.1

%

0.8

%

Allowance /
Nonperforming Loans

62.1

%

93.2

%

62.1

%

93.2

%

17

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and Allowance for Loan Losses (continued)

The following
presents the balance in the allowance for loan losses and the recorded
investment in loans by portfolio segment and is based on impairment method as
of September 30, 2012 and December 31, 2011:

As of September 30, 2012

(Dollars in Thousands)

Commercial

Commercial
Real
Estate

Residential
Real
Estate

Home
Equity

Consumer

Unallocated

Total

Ending
allowance for loan losses:

Individually evaluated for impairment

$



$

2,475

$



$



$



$



$

2,475

Collectively evaluated for impairment

728

4,177

120

295

25

10

5,355

Total ending allowance balance

$

728

$

6,652

$

120

$

295

$

25

$

10

$

7,830

Loans:

Individually evaluated for impairment

$

22

$

20,077

$

106

$



$



$



$

20,205

Collectively evaluated for impairment

40,089

202,855

7,644

13,335

1,832



265,755

Total ending loan balance

$

40,111

$

222,932

$

7,750

$

13,335

$

1,832

$



$

285,960

As of December 31, 2011

(Dollars in Thousands)

Commercial

Commercial
Real
Estate

Residential
Real
Estate

Home
Equity

Consumer

Unallocated

Total

Ending allowance for loan
losses:

Individually
evaluated for impairment

$



$

255

$



$



$



$



$

255

Collectively
evaluated for impairment

743

4,896

135

246

57

234

6,311

Total
ending allowance balance

$

743

$

5,151

$

135

$

246

$

57

$

234

$

6,566

Loans:

Individually
evaluated for impairment

$



$

23,622

$



$

23

$



$



$

23,645

Collectively
evaluated for impairment

44,833

218,026

8,542

14,210

2,512



288,123

Total
ending loan balance

$

44,833

$

241,648

$

8,542

$

14,233

$

2,512

$



$

311,768

18

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and Allowance for Loan Losses (continued)

The following
presents loans individually evaluated for impairment by class of loans as of
September 30, 2012 and December 31, 2011:

As of September 30, 2012

(Dollars in
Thousands)

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

Average
Recorded
Investment

Interest
Income
Recognized

Cash Basis
InterestIncomeRecognized

With no
related allowance recorded:

Commercial

$

22

$

22

$



$

24

$

1

$



Commercial real estate

Construction and land

5,899

3,121



2,912

160



Non-owner occupied

803

467



1,022

23



Owner occupied

1,329

699



696

47



Residential

106

106



102

10



Home equity













Consumer













Total

8,159

4,415



4,756

241



With an
allowance recorded:

Commercial













Commercial real estate

Construction and land













Non-owner occupied

7,727

7,728

2,104

7,802

307



Owner occupied

8,763

8,062

371

8,025

238



Residential













Home equity













Consumer













Total

16,490

15,790

2,475

15,827

545



Total

$

24,649

$

20,205

$

2,475

$

20,583

$

786

$



19

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and Allowance for Loan Losses (continued)

As of December 31, 2011

(Dollars in Thousands)

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

Average
Recorded
Investment

Interest
Income
Recognized

Cash Basis
Interest Income
Recognized

With no related allowance
recorded:

Commercial

$



$



$



$

239

$



$



Commercial real estate

Construction and land

9,825

4,776



9,640

40



Non-owner occupied

10,026

8,391



9,956

199



Owner occupied

3,295

2,079



3,265

61



Residential













Home equity

59

23



23





Consumer













Total

23,205

15,269



23,123

300



With an allowance recorded:

Commercial













Commercial real estate

Construction and land













Non-owner occupied

2,177

1,500

10

2,177

158



Owner occupied

6,876

6,876

245

6,860

49



Residential













Home equity













Consumer













Total

9,053

8,376

255

9,037

207



Total

$

32,258

$

23,645

$

255

$

32,160

$

507

$



No additional
funds are committed to be advanced in connection with impaired loans.

20

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and Allowance for Loan Losses (continued)

Impaired loans
include TDRs of $15.6 million and $17.5 million at September 30, 2012 and
December 31, 2011, respectively. As of September 30, 2012 and December 31,
2011, there were two nonperforming TDRs with outstanding balances of $6.3
million and $971 thousand, respectively.

During the
three months ended September 30, 2012, three CRE loans were classified by the
Banks as TDRs. Orange Bank on the one loan reduced the interest rate and
retained the monthly interest only payments. Floridian Bank, for the other two
loans, increased the interest rate from 3.25% to 5.1% and modified the payments
from interest only to principal and interest payments sufficient to term out
the loans over ten years. Both of Floridian Banks loans had been classified as
TDRs in 2010.

During the
nine months ended September 30, 2012, the Banks classified four CRE loans with
an aggregate outstanding balance $4.3 million as TDRs. Charge-offs totaling
$1.4 million were taken on the loans. The Banks had no commitments to lend
additional funds for loans classified as TDRs at September 30, 2012. No TDRs
defaulted within 12 months of being restructured.

The following presents the
recorded investment in nonaccrual loans and loans past due over 90 days and
still accruing by class of loans as of September 30, 2012 and December 31,
2011:

September 30, 2012

December 31, 2011

(Dollars in Thousands)

Nonaccrual

Loans Past
Due 90 Days
and Over
Still Accruing

Nonaccrual

Loans Past
Due 90 Days
and Over
Still Accruing

Commercial

$

22

$



$



$



Commercial real estate

Construction and land

3,121



4,777



Non-owner occupied

6,703

1,912

2,245

471

Owner occupied

699



842



Residential

106







Home equity

47



71



Consumer









Total

$

10,698

$

1,912

$

7,935

$

471

Nonaccruing
loans totaled $10.7 million and $7.9 million at September 30, 2012 and December
31, 2011, respectively. Interest income on nonaccrual loans is recognized on a
cash basis when the ultimate collectability is no longer considered doubtful.
Cash collected on nonaccrual loans is applied against the principal balance or
recognized as interest income based upon managements expectations as to the ultimate
collectability of principal and interest in full. If interest on nonaccruing
loans had been recognized on a fully-accruing basis, interest income recorded
would have been $163 thousand and $453 thousand higher for the quarter ended
September 30, 2012 and the year ended December 31, 2011, respectively. As of
September 30, 2012, there was one loan past due 90 days or more and still
accruing interest income. The loan was matured and has subsequently been
renewed. The one loan past due 90 days or more as of December 31, 2011
represented a matured loan that was renewed.

21

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and Allowance for Loan Losses (continued)

The following presents the
aging of the recorded investment in past due loans as of September 30, 2012 and
December 31, 2011 by class of loans:

September 30, 2012

(Dollars in Thousands)

30  59
Days
Past Due

60  89
Days
Past Due

90 Days
or Greater
Past Due

Total
Past Due

Loans Not
Past Due

Commercial

$

755

$



$

22

$

777

$

39,334

Commercial
real estate

Construction and land



303

1,798

2,101

34,995

Non-owner occupied

229

774

2,378

3,381

89,929

Owner occupied

104

511

375

990

91,536

Residential



115

106

221

7,529

Home
equity

400

300

47

747

12,588

Consumer



2



2

1,830

Total

$

1,488

$

2,005

$

4,726

$

8,219

$

277,741

December 31, 2011

(Dollars in Thousands)

30 - 59
Days
Past Due

60 - 89
Days
Past Due

90 Days
Or Greater
Past Due

Total
Past Due

Loans Not
Past Due

Commercial

$

1,500

$



$



$

1,500

$

43,333

Commercial real estate

Construction and land





3,283

3,283

39,156

Non-owner occupied

399



2,716

3,115

96,185

Owner occupied





842

842

99,067

Residential



501



501

8,041

Home equity





71

71

14,162

Consumer

4

3



7

2,505

Total

$

1,903

$

504

$

6,912

$

9,319

$

302,449

The Company assigns a risk
rating to all business purpose loans and periodically performs reviews to
identify credit risks and to assess the overall collectability of the
portfolio. During these internal reviews, management monitors and analyzes the
financial condition of borrowers and guarantors, trends in the industries in
which borrowers operate and the fair values of collateral securing these loans.
These credit quality indicators are used to assign a risk rating to each
individual loan. The risk ratings can be grouped into five major categories,
defined as follows:

Pass
 A pass loan is a strong credit with no existing or known potential weaknesses
deserving of managements close attention.

Special Mention  A special mention loan has potential weaknesses that deserve
managements close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loan or in the
Companys credit position at some future date. Special Mention loans are not
adversely classified and do not expose the Company to sufficient risk to
warrant adverse classification.

22

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and
Allowance for Loan Losses (continued)

Substandard  A substandard loan is not adequately protected by the current
financial condition and paying capacity of the borrower or the value of the
collateral pledged, if any. Loans classified as substandard have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt.
Well-defined weaknesses include a projects lack of marketability, inadequate
cash flow or collateral support, failure to complete construction on time or
the projects failure to fulfill economic expectations. They are characterized
by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected.

Doubtful  Loans classified doubtful have all the weaknesses inherent in those
classified as substandard with the added characteristic that the weaknesses
make collection or liquidation in full, on the basis of currently known facts,
conditions and values, highly questionable or improbable.

Loss
 Loans classified as loss are considered uncollectible. Once a loan becomes
delinquent and repayment becomes questionable, the Company will address
collateral shortfalls with the borrower and attempt to obtain additional
collateral. If this is not forthcoming and payment in full is unlikely, the
Bank will estimate its probable loss and immediately charge-off some or all of
the balance.

As of September 30, 2012 and
December 31, 2011, and based on the most recent analysis performed, the risk
category of loans by class of loans is as follows:

September 30, 2012

(Dollars
in Thousands)

Pass

Special
Mention

Substandard

Doubtful

Loss

Commercial

$

37,493

$

2,400

$

218

$



$



Commercial
real estate

Construction and land

33,974



3,121





Non-owner occupied

86,607



6,703





Owner occupied

79,528

5,040

7,959





Residential

7,644



106





Home
equity

13,288



47





Consumer

1,832









Total

$

260,366

$

7,440

$

18,154

$



$



December 31, 2011

(Dollars
in Thousands)

Pass

Special
Mention

Substandard

Doubtful

Loss

Commercial

$

44,628

$



$

205

$



$



Commercial real estate

Construction and land

37,663



4,776



Non-owner occupied

90,909



8,391





Owner occupied

86,663

5,115

8,131





Residential

8,542









Home equity

14,162



71





Consumer

2,512









Total

$

285,079

$

5,115

$

21,574

$



$



23

Floridian Financial
Group, Inc. and Subsidiaries

Note 4.

Loans and
Allowance for Loan Losses (continued)

The following presents the
recorded investment in residential and consumer loans based on payment activity
as of September 30, 2012 and December 31, 2011:

September 30, 2012

(Dollars in Thousands)

Residential

Home
Equity

Consumer

Performing

$

7,644

$

13,288

$

1,832

Nonperforming

106

47



Total

$

7,750

$

13,335

$

1,832

December 31, 2011

(Dollars in Thousands)

Residential

Home
Equity

Consumer

Performing

$

8,542

$

14,162

$

2,512

Nonperforming



71



Total

$

8,542

$

14,233

$

2,512

Note 5.

Commitments and Contingencies

Financial instruments with off-balance-sheet risk:
The financial statements do not reflect various commitments and contingent
liabilities that arise in the normal course of business to meet the financing
needs of customers. These include commitments to extend credit and honor
stand-by letters of credit. These instruments involve, to varying degrees,
elements of credit, interest rate and liquidity risks in excess of amounts
reflected in the balance sheets. The extent of the Banks involvement in these
commitments or contingent liabilities is expressed by the contractual, or
notional, amounts of the instruments. Commitments to extend credit, which
amount to $50.5 million and $57.2 million at September 30, 2012 and December
31, 2011, respectively, represent agreements to lend to customers with fixed
expiration dates or other termination clauses.

Since many
commitments are expected to expire without being funded, committed amounts do
not necessarily represent future liquidity requirements. The amount of
collateral obtained, if any, is based on managements credit evaluation in the
same manner as though an immediate credit extension were to be granted.

Standby
letters of credit are conditional commitments issued by the Banks guaranteeing
the performance of a customer to a third party. The decision whether to
guarantee such performance and the extent of collateral requirements are made
considering the same factors as are considered in credit extensions. Stand-by
letters of credit totaling $2.5 and $3.2 million were outstanding as of September
30, 2012 and December 31, 2011, respectively.

Lines of credit: At September 30, 2012 and
December 31, 2011, the Banks had federal funds lines of credit available from
their correspondent banks of $24.0 and $30.3 million, respectively. At these
dates, there were no outstanding draws under these lines. The highest single
day borrowing under these lines was $8.3 million during the nine months ended
September 30, 2012.

We are
periodically a party to or otherwise involved in legal proceedings arising in
the normal course of business, such as claims to enforce liens, claims
involving the making and servicing of real property loans, and other issues
incident to our business. Management does not believe that there is any pending
or threatened proceeding against us which, if determined adversely, would have
a material adverse effect on our financial position, liquidity, or results of
operations.

24

Floridian Financial
Group, Inc. and Subsidiaries

Note 6.

Regulatory Capital Matters

The Companys
Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material adverse effect on
the Companys financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involve quantitative measures of the Banks assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors. Prompt corrective action provisions are not applicable to
bank holding companies.

Quantitative
measures established by regulation to ensure capital adequacy require the Banks
to maintain minimum amounts and ratios of total and Tier 1 capital (as defined
in the regulations), to risk-weighted assets (as defined), and Tier 1 capital
(as defined), to average assets (as defined). As of September 30, 2012 and
December 31, 2011, the Banks meet all capital adequacy requirements to be
classified as well capitalized under prompt corrective action provisions and
meet all capital adequacy requirements to which they are subject.

Pursuant to Orange
Banks regulatory Memorandum of Understanding (the MOU), Orange Bank
is required to maintain a minimum Tier 1 capital to average assets ratio of 8%
and total capital to risk-weighted assets of 12%. As of September 30, 2012,
Orange Bank met the minimum capital requirement as required by the MOU.

The payment of dividends by a
Florida state bank is subject to various restrictions set forth in the Florida
Financial Institutions Code. Such restrictions generally limit dividends to an
amount not exceeding net income for the current and two preceding years, less
any dividends paid during that period. Accordingly, management does not expect
the payment of dividends at any time in the near future. Since the Company is
dependent upon the Banks ability to pay dividends, the Company is, in effect,
similarly restricted as to its ability to pay dividends. Further, the Boards of
Directors of the Banks are restricted from declaring and paying the Company any
dividends without the prior approval of our banking regulators. See Note 9.

26

Floridian Financial
Group, Inc. and Subsidiaries

Note 7.

Fair Values of Financial Instruments

Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. A fair value measurement
assumes that the transaction to sell the asset or transfer the liability occurs
in the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. The
price in the principal (or most advantageous) market used to measure the fair
value of the asset or liability shall not be adjusted for transaction costs. An
orderly transaction is a transaction that assumes exposure to the market for a
period prior to the measurement date to allow for marketing activities that are
usual and customary for transactions involving such assets and liabilities; it
is not a forced transaction. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to
transact and (iv) willing to transact.

Estimating fair value
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach
uses prices and other relevant information generated by market transactions
involving identical or comparable assets and liabilities. The income approach
uses valuation techniques to convert expected future amounts, such as cash
flows or earnings, to a single present value amount on a discounted basis. The
cost approach is based on the amount that currently would be required to
replace the service capacity of an asset (replacement cost). Valuation
techniques should be consistently applied. Inputs to valuation techniques refer
to the assumptions that market participants would use in pricing the asset or
liability. Inputs may be observable, meaning those that reflect the assumptions
market participants would use in pricing the asset or liability developed based
on market data obtained from independent sources, or unobservable, meaning
those that reflect the reporting entitys own assumptions about the assumptions
market participants would use in pricing the asset or liability developed based
on the best information available in the circumstances. In that regard, the
guidance establishes a fair value hierarchy for valuation inputs that gives the
highest priority to quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs.

The fair value
hierarchy is as follows:

Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.

Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities, quoted prices in markets that are
not active, or other inputs that are observable or can be corroborated by
observable market data.

Level 3:
Significant unobservable inputs that reflect a reporting entitys own
assumptions about the assumptions that market participants would use in
pricing an asset or liability.

A financial instruments
categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.

A description
of the valuation methodologies used for instruments measured at fair value, as
well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below.

In general,
fair value is based upon quoted market prices, where available. If such quoted
market prices are not available, fair value is based upon internally developed
models that primarily use, as inputs, observable market-based parameters.
Valuation adjustments may be made to ensure that financial instruments are
recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality, the Companys creditworthiness, among other
things, as well as unobservable parameters. Any such valuation adjustments are
applied consistently over time. Our valuation methodologies may produce a fair
value calculation that may not be indicative of net realizable value or
reflective of future fair values. While management believes the Companys
valuation methodologies are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different
estimate of fair value at the reporting date.

27

Floridian Financial
Group, Inc. and Subsidiaries

Note 7.

Fair Values of Financial Instruments (continued)

The following
methods and assumptions were used by the Company in estimating the fair value
of its financial instruments:

Cash and due from banks, interest bearing demand deposits in other
banks, and federal funds sold: Due to the short-term
nature of these instruments, fair values approximate their carrying amounts.

Investment Securities: The fair values of
investment securities are determined by quoted prices in active markets, when
available. If quoted market prices are not available, the fair value is
determined by a matrix pricing, which is a mathematical technique, widely used
in the industry to value debt securities without relying exclusively on quoted
prices for the specific securities but rather by relying on the securities
relationship to other benchmark quoted securities. Other investments include
non-traded securities in bankers-bank stock which is estimated to approximate
its book value.

Loans: For variable-rate loans that re-price
frequently and with no significant change in credit risk, fair values are based
on carrying values. Fair values for all other loans (for example, commercial,
commercial real estate, residential real estate, and consumer loans) are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Fair values for nonperforming loans are estimated using discounted
cash flow analyses or underlying collateral values, where applicable.

Impaired
Loans: Loans for
which it is probable that payment of interest and principal will not be made in
accordance with the contractual
terms of the loan agreement are considered impaired. Once a loan is identified
as individually impaired, management measures impairment in accordance with the
FASB guidance Accounting by Creditors for Impairment of a Loan, and the fair
value of impaired loans is estimated using one of several methods, including
collateral value, market value of similar debt, enterprise value, liquidation
value and discounted cash flows. Those impaired loans not requiring an
allowance represent loans for which the fair value of the expected repayments
or collateral exceed the recorded investments in such loans. In accordance with
accounting literature, impaired loans where an allowance is established based
on the fair value of collateral require classification in the fair value hierarchy.
Collateral values are estimated using level 3 inputs based on customized
discounting criteria.

Other Real Estate Owned: Other real estate owned consists of property
acquired through, or in lieu of, loan foreclosures or other proceedings and is
initially recorded at fair value less estimated selling costs at the date of
foreclosure, which establishes a new cost basis. Subsequent to foreclosure, the
properties are held for sale and are carried at the lower of cost or the net
fair value less disposal costs. Properties are evaluated regularly to ensure
the recorded amounts are supported by current fair values, and a charge to
operations is recorded as necessary to reduce the carrying amount to fair value
less estimated costs to dispose.

Deposits: The fair value of demand deposits,
including non-interest bearing demand deposits, savings accounts, NOW accounts
and money market demand accounts, is equal to their carrying value. Fixed rate
term deposits are valued using discounted cash flows. The discount rate used is
based on interest rates currently being offered on comparable deposits as to
amount and term.

Other
borrowings: The
carrying amounts of borrowings under repurchase agreements amount of $4.3
million and a long-term note payable of $850 thousand approximate their fair
values.

Off-balance-sheet instruments: Loan
commitments and standby letters of credit are negotiated at current market
rates and are relatively short-term in nature. Therefore, their estimated fair
value approximates the fees charged and is nominal at September 30, 2012 and
December 31, 2011.

28

Floridian Financial
Group, Inc. and Subsidiaries

Note 7.

Fair Values of Financial Instruments (continued)

Financial Instruments Recorded at Fair Value
on a Recurring Basis

The following
table sets forth the Companys assets and liabilities which are carried at fair
value on a recurring basis as of September 30, 2012 and December 31, 2011,
segregated by the level of the valuation inputs within the fair value hierarchy
utilized to measure fair value:

September 30, 2012

(Dollars
in Thousands)

Quoted Prices in
Active Markets
for Identical
Assets
Level 1

Significant Other
Observable
Inputs
Level 2

Significant
Unobservable
Inputs
Level 3

Total at Fair
Value

Securities available for sale Debt
securities:

U.S. Government and federal agencies

$



$



$



$



States & political subdivisions



5,827



5,827

U.S. Agency REMIC



35,818



35,818

U.S. Agency MBS



18,574



18,574

Total securities available for sale

$



$

60,219

$



$

60,219

December
31, 2011

Quoted
Prices in
Active Markets
for Identical
Assets
Level 1

Significant
Other
Observable
Inputs
Level 2

Significant
Unobservable
Inputs
Level 3

Total at
Fair
Value

Securities available for sale Debt
securities:

U.S. Government and federal agencies

$



$

13,690

$



$

13,690

States & political subdivisions



1,795



1,795

U.S. Agency REMIC



39,038



39,038

U.S. Agency MBS



18,613



18,613

Total securities available for sale

$



$

73,136

$

_

$

73,136

29

Floridian Financial
Group, Inc. and Subsidiaries

Note 7.

Fair Values of Financial Instruments (continued)

Financial
Instruments Recorded at Fair Value on a Nonrecurring Basis

The Company
may be required, from time to time, to measure certain financial assets and
financial liabilities at fair value on a nonrecurring basis in accordance with
U.S. generally accepted accounting principles. These include assets that are
measured at the lower of cost or market that were recognized at fair value
below cost at the end of the period.

The fair values of assets measured at fair value on a
nonrecurring basis are as follows at September 30, 2012 and December 31,
2011:

September 30, 2012

(Dollars
in Thousands)

Quoted Prices in
Active Markets forIdentical AssetsLevel 1

Significant OtherObservableInputsLevel 2

SignificantUnobservableInputsLevel 3

Impaired
loans

$



$



$

3,529

Other
real estate owned

$



$



$

3,614

December
31, 2011

(Dollars in Thousands)

Quoted
Prices in
Active Markets forIdentical
AssetsLevel 1

Significant
OtherObservableInputsLevel 2

SignificantUnobservableInputsLevel 3

Impaired loans

$



$



$

5,913

Other real estate owned

$



$



$

5,129

Provisions for loan losses
of $1.5 million and $1.7 million were recorded on impaired loans during the nine
months ended September 30, 2012 and 2011, respectively.

Write-downs of $166 thousand
and $387 thousand were recorded on other real estate owned during the nine
months ended September 30, 2012 and 2011, respectively. Subsequent to September
30, 2012, Orange Bank sold an OREO property for $1.5 million.

30

Floridian Financial
Group, Inc. and Subsidiaries

Note 7.

Fair Values of Financial Instruments (continued)

Following is a summary of
the carrying amounts and approximate fair values of the Companys financial
instruments at September 30, 2012 and December 31, 2011. The fair value
estimates presented are based on pertinent information available to management
as of September 30, 2012 and December 31, 2011. Although management is not
aware of any factors that would significantly affect the estimated fair values,
they have not been comprehensively revalued for purposes of these financial
statements since the statement of financial condition date, and therefore,
current estimates of fair value may differ significantly from the amounts
disclosed.

September 30, 2012
Fair Value Measurements Using:

(Dollars
in Thousands)

Carrying
Amount

Quoted Price
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial
assets:

Cash and due
from banks

$

4,909

$

4,909

$



$



Federal
funds sold and interest bearing deposits

26,541

26,541





Available
for sale securities

60,219



60,219



Other
investments

52





52

Loans, net

278,008



275,999

3,529

Accrued
interest receivable

1,127



1,127



Financial
liabilities:

Deposits

$

352,132

$



$

352,648

$



Other
borrowings

5,102

5,102





Accrued
interest payable

43



43



(Dollars
in Thousands)

December 31, 2011
Fair Value Measurements Using:

Carrying
Amount

Quoted Price in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial
assets:

Cash and due
from banks

$

8,930

$

8,930

$



$



Federal
funds sold and interest bearing deposits

23,917

23,917





Securities
held to maturity

1,002



1,013



Available
for sale securities

73,136



73,136



Other
investments

100





100

Loans, net

305,088



301,549

5,913

Accrued
interest receivable

1,180



1,180



Financial
liabilities:

Deposits

$

393,726

$



$

394,940

$



Other
borrowings

13,955

13,955





Accrued
interest payable

87



87



31

Floridian Financial
Group, Inc. and Subsidiaries

Note 7.

Fair Values of Financial Instruments (continued)

Assets
measured at fair value on a recurring basis and for which the Company has
utilized Level 3 inputs to determine fair value were immaterial at September
30, 2012.

The following table presents additional quantitative information about
assets measured at fair value on a nonrecurring basis and for which the Company
utilized Level 3 inputs to determine fair value:

(1) Fair value is generally determined
through independent appraisals of the underlying collateral, which generally
include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management
for qualitative factors such as economic conditions and estimated selling
costs. The range and weighted average of estimated selling costs and other
appraisal adjustments are presented as a percent of the appraisal.

(3) Includes qualitative adjustments by
management and estimated selling costs.

32

Floridian Financial
Group, Inc. and Subsidiaries

Note 8.

Related
Party

On January 4, 2011, Orange
Bank purchased the land, building, and furniture and fixtures associated with
the Clermont Branch location from First Team Clermont OB, LLC, a Florida
limited liability company (First Team). First Team is controlled by W. Warner
Peacock, a former director of the Company. First Team holds a note on the land,
building, and furniture and fixtures of $1.7 million. The note requires monthly
interest payments at 6.5% per annum. The note required a principal reduction of
$850 thousand on January 3, 2012, with all outstanding principal and interest
due on January 3, 2013.

Note 9.

Regulatory Agreement

On
July 21, 2011, the board of directors of Floridian Bank agreed to approve the
board resolution in consultation with their banking regulators. On September
11, 2012, the regulatory board resolution for Floridian Bank was terminated. On
July 21, 2011, the board of directors of Orange Bank agreed to approve a board
resolution and subsequently on July 19, 2012, the board of directors of Orange
Bank agreed to adopt a MOU issued by its banking regulator. From a regulatory
perspective, a MOU is a nonpublic agreement; however, in the interest of full
disclosure, we are summarizing the main obligations of Orange Banks MOU. The
FDIC issues an MOU when it believes a board resolution would not adequately
address its concerns.

For
Orange Bank, its memorandum of understanding (MOU) includes, among other
things, (i) seeking approval from the FDIC and Florida Office of Financial
Regulation (OFR) prior to appointing new directors and executive officers;
(ii) enhancing the board of directors participation in the affairs of Orange
Bank; (iii) developing plans to reduce and improve certain loan relationships
with adverse classification; (iv) charging off remaining assets classified as
Loss; (v) prohibiting extensions of credit to certain high-risk borrowers;
(vi) submitting of a new business plan and annual budgets and earnings
forecasts; (vii) achieving and maintaining, by September 30, 2012, a Tier 1
leverage capital ratio and total risk-based capital ratio of at least 8% and
12%, respectively; and (viii) providing quarterly reports to the FDIC and OFR regarding
the steps taken to address the foregoing. Orange Bank must also receive
approval from the FDIC and OFR prior to declaring or paying dividends.

The
MOU adopted by Orange Bank and the restrictions imposed thereby on Orange Bank
will remain in effect unless modified or terminated by the Banks regulators.
Since entering into the board resolution and MOU, we have been actively
pursuing the corrective actions. We intend to continue to take the actions
necessary to comply with the requirements of the MOU and implement the
submitted plan successfully, although we may be unable to do so. As of
September 30, 2012, Orange Banks Tier 1 leverage capital ratio and total
risk-based capital ratio were approximately 8.8% and 12.7%, respectively;
meeting all regulatory requirements.

On
October 20, 2011, the Companys board of directors agreed to adopt certain
board resolutions (the FRB Resolution) in consultation with the Federal
Reserve Bank of Atlanta (the FRB). The FRB Resolution require, among other
things, that the Company seek approval from the FRB prior to incurring any
debt, declaring or paying any dividends, reducing its capital position (e.g.,
through the purchase of treasury shares), or making distributions on
subordinated debentures or trust preferred securities. The FRB Resolution
approved by the Company and the restrictions imposed thereby on the Company
will remain in effect until terminated by the FRB. We intend to take the
actions necessary to comply with the requirements of the FRB Resolution.

Note 10.

Branch Sale

On
August 17, 2012, Orange Bank, entered into a Purchase and Assumption Agreement
(the Agreement) to sell the Banks Crystal River branch to Old Florida
National Bank (Old Florida). The Bank has agreed to sell the branchs real
estate and improvements, the deposits associated with the branch and a related
portfolio of loans. Old Florida will pay the value of the loans at closing of
approximately $4.2 million, assume the deposits of approximately $43.6 million
for no premium and pay $1.0 million for the real estate and improvements. The
sale has been approved by our regulators and is expected to close in the first
quarter of 2013. A loss of $250 thousand was recognized in the third quarter
2012 on the sale of the branch.

33

Item 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The
following managements discussion and analysis provides supplemental
information, which sets forth the major factors that have affected our financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in
conjunction with the Consolidated Financial Statements and related notes. The
analysis is divided into subsections entitled Business Overview, Results of
Operations, Market Risk, Financial Condition, Liquidity, Capital
Resources, Off-Balance Sheet Arrangements, and Critical Accounting
Policies. Throughout this section, Floridian Financial Group, Inc. and
subsidiaries, collectively, are referred to as Company, we, us, or our.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This
Quarterly Report on Form 10-Q, including this managements discussion and
analysis section, contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include, among others, statements about our beliefs, plans,
objectives, goals, expectations, estimates and intentions that are subject to
significant risks and uncertainties and are subject to change based on various
factors, many of which are beyond our control. The words may, could,
should, would, believe, anticipate, estimate, expect, intend,
plan, target, goal, and similar expressions are intended to identify
forward-looking statements.

All
forward-looking statements, by their nature, are subject to risks and
uncertainties. Our actual future results may differ materially from those set
forth in our forward-looking statements. Please see the Introductory Note and
Item 1A. Risk Factors of our Annual Report on Form 10-K, as updated from
time to time, and in our other filings made from time to time with the SEC
after the date of this report.

However,
other factors besides those listed in our Quarterly Report or in our Annual
Report also could adversely affect our results, and you should not consider any
such list of factors to be a complete set of all potential risks or
uncertainties. Any forward-looking statements made by us or on our behalf speak
only as of the date they are made. We do not undertake to update any
forward-looking statement, except as required by applicable law.

Business Overview

About Our Business

We
are a multi-bank holding company headquartered in Lake Mary, Florida, a
community situated between Orlando and Daytona Beach, Florida. We were
incorporated on September 8, 2005 as the bank holding company of Floridian
Bank, a Florida chartered commercial bank. We commenced operations, along with
Floridian Bank, on March 20, 2006. From 2006 to 2008, we experienced periods of
rapid growth. On June 30, 2008, we closed a merger transaction in which Orange
Bank of Florida, a Florida chartered commercial bank, became our wholly-owned
subsidiary. The transaction was treated as a merger of equals where each
shareholder of Orange Bank received 1.04 shares of our common stock. At the
time of the merger, Orange Bank had approximately $196 million in assets,
including approximately $121 million in loans, and approximately $176 million
in deposits. In 2009, we began a process of slowing our growth and preserving
capital.

Both
Floridian Bank and Orange Bank are full-service commercial banks, providing a
wide range of business and consumer financial services in our target
marketplace, which is comprised primarily of Orange, Seminole, Citrus, Lake,
Flagler, and Volusia Counties in Florida. Floridian Bank is headquartered in
Daytona Beach, Florida, with a primary service area in Flagler and Volusia
Counties. Orange Bank is headquartered in Orlando, Florida, with a primary
service area in Orange, Seminole, Lake and Citrus Counties. Collectively, our
Banks operate 10 banking offices.

The
Banks offer commercial and retail banking services with an emphasis on
commercial and commercial real estate lending, particularly to the medical
services industry. As of September 30, 2012, we had total assets of $400.0
million, deposits of $352.1 million, total gross loans of $286.0 million and
total shareholders equity of $40.5 million.

34

Our
principal executive offices are located at 175 Timacuan Boulevard, Lake Mary,
Florida 32746. The telephone number at that office is (407) 321-3233.

Regulatory
Matters

As
described in Note 9 to our consolidated financial statements, the Company has
adopted the FRB Resolution and Orange Bank has adopted the MOU in consultation
with their banking regulators. Pursuant to the FRB Resolution and the MOU, we
have agreed to preserve capital by agreeing to place restrictions on our
ability to declare and pay dividends, issue debt, repurchase shares of stock,
or make other distributions. Orange Bank, among other things, has agreed to
maintain heightened capital ratios. As of September 30, 2012, Orange Bank was
in compliance with the heightened capital ratios. See Note 9 for a further
discussion.

Results of Operations

CONDENSED SUMMARY OF EARNINGS

For the three months
ended September 30,

For the nine months ended
September 30,

(Dollars
in Thousands, except per share data)

2012

2011

2012

2011

Interest income

$

3,574

$

4,309

$

11,614

$

12,828

Interest expense

514

1,004

1,915

3,137

Net interest income

3,060

3,305

9,699

9.691

Provision for loan losses

104

550

1,520

1,747

Noninterest income

421

168

2,046

854

Noninterest expense

3,221

3,388

9,026

10,446

Income before income taxes

156

(465

)

1,199

(1,648

)

Income tax expense



25



200

Net profit (loss)

$

156

$

(490

)

$

1,199

$

(1,848

)

Basic net profit (loss) per share

$

0.03

$

(0.08

)

$

0.20

$

(0.30

)

Diluted net profit (loss) per share

$

0.03

$

(0.08

)

$

0.20

$

(0.30

)

Selected operating ratios

Return on average assets

0.22

%

(0.40

)%

0.40

%

(0.53

)%

Return on average equity

2.08

%

(4.83

)%

4.12

%

(6.18

)%

Dividend payout ratio

N/A

N/A

N/A

N/A

Equity to assets ratio

10.12

%

8.57

%

10.12

%

8.57

%

The
net profit for the three months ended September 30, 2012 was $156 thousand
compared to a net loss of $490 thousand for the same period in 2011. The
improvement was principally due to a $371 thousand net gain on the sale of
securities and the decrease in the provision for loan losses of $446 thousand
offset by a decline in net interest income. During the third quarter Orange
Bank recognized a $250 thousand loss on the sale of the Crystal River branch.
The sale is expected to close in January 2013.

For
the nine months ended September 30, 2012 net profit was $1.2 million compared
to a $1.8 million loss for the same period in 2011. The improvement was
principally due to a $1.3 million net gain on the sale of securities and a $1.4
million decrease in salary expense from $5.0 million for the nine months ended
September 30, 2011, to $3.6 million for the nine months ended September 30,
2012. The reduction in salary expense was a combination of the consolidation of
senior executive positions in 2011 and a $369 thousand adjustment to deferred
compensation related to the resignation of Charlie Brinkley, our former
President and CEO, in September 2011. As of the resignation date, Mr. Brinkley
was 30% vested in the accrued balance of his salary continuation agreement.

Net
Interest Income

Our
profitability is dependent to a large extent on net interest income, which is
the difference between the interest received on earning assets (such as loans
and securities) and the interest paid on interest bearing liabilities
(principally deposits and borrowings). Our principal interest earning assets
are loans, investment securities, and federal funds
sold. Interest bearing liabilities primarily consist of certificates of
deposit, interest bearing checking accounts (NOW accounts), savings deposits,
and money market accounts. Funds attracted by these interest bearing
liabilities, as well as noninterest bearing deposits, are invested in
interest-earning assets. Accordingly, net interest income depends upon the
volume of average interest-earning assets and average interest bearing
liabilities and the interest rates earned or paid on them.

35

Our
net interest income is impacted by the market rates of interest as influenced
by the Federal Reserves monetary policy. We have seen a narrowing of margins
over the last several years and with the Federal Reserves announcement to keep
short-term interest rates at near zero through mid-2015 we expect this trend to
continue. We believe our service commitment to our customers, however, will
enable us to continue to attract deposits and make loans at rates that will not
significantly deteriorate our margins.

The
following table reflects the components of net interest income for the three
month periods ended September 30, 2012 and 2011. It sets forth, (1) average
assets, liabilities and shareholders equity, (2) interest income earned on
interest-earning assets and interest paid on interest bearing liabilities, (3)
average yields earned on interest-earning assets and average rates paid on
interest bearing liabilities, (4) our net interest spread (i.e., the average
yield on interest-earning assets less the average rate on interest bearing
liabilities) and (5) our net interest margin (i.e., the net yield on interest
earning assets):

AVERAGE BALANCES AND INTEREST RATES

Three months ended September 30,

2012

2011

(Dollars
in Thousands)

Average
Balance

Interest

Rate

Average
Balance

Interest

Rate

ASSETS

Loans, Net(1)(2)

$

287,768

$

3,522

4.87

%

$

313,452

$

3,980

5.04

%

Investment
Securities

65,073

42

0.26

46,076

275

2.39

Federal
Funds Sold

11,567

8

0.28

79,877

4

0.20

Deposits at
interest with banks

2,060

2

0.39

2,648

50

7.49

Total
Earning Assets

366,468

3,574

3.88

%

442,053

4,309

3.87

%

Other Assets

30,996

40,671

Total Assets

$

397,464

$

482,724

LIABILITIES

Savings, NOW and Money Market

$

148,194

$

151

0.41

%

$

165,959

$

268

0.67

%

Time
Deposits

102,343

328

1.27

168,428

680

1.80

Total
Interest Bearing Deposits

250,537

479

0.76

334,387

948

1.23

Other
Borrowings

11,526

35

1.21

8,734

56

2.79

Total
Interest Bearing Liabilities

262,063

514

0.78

%

343,121

1,004

1.27

%

Noninterest
Bearing Deposits

92,669

96,837

Other
Liabilities

2,080

2,494

Total
Liabilities

356,812

442,452

Total
Shareholders Equity

40,652

40,272

Total
Liabilities and Equity

$

397,464

$

482,724

Interest
Rate Spread

3.10

%

2.60

%

Net Interest
Income

$

3,060

$

3,305

Net Interest
Margin

3.32

%

2.89

%

(1)

Average
balances include nonaccrual loans, and are net of unearned loan fees of $157
and $214 at September 30, 2012 and 2011, respectively.

(2)

Interest
income includes fees on loans of $37 and $12 for the three months ended
September 30, 2012 and 2011, respectively.

36

The
following table reflects the components of net interest income for the nine
month periods ended September 30, 2012 and 2011:

AVERAGE BALANCES AND INTEREST RATES

Nine months ended September 30,

2012

2011

(Dollars
in Thousands)

Average
Balance

Interest

Rate

Average
Balance

Interest

Rate

ASSETS

Loans, Net(1)(2)

$

295,152

$

10,989

4.97

%

$

311,744

$

11,734

5.03

%

Investment Securities

70,428

581

1.10

50,582

980

2.58

Federal Funds Sold

17,682

38

0.29

55,587

107

0.26

Deposits at interest with banks

2,376

6

0.34

2,907

7

0.32

Total Earning Assets

385,638

11,614

4.02

%

420,820

12,828

4.08

%

Other Assets

34,173

41,270

Total Assets

$

419,811

$

462,090

LIABILITIES

Savings, NOW and Money Market

$

150,169

$

473

0.42

%

$

164,309

$

967

0.79

%

Time Deposits

124,431

1,349

1.45

151,582

1,983

1.75

Total Interest Bearing Deposits

274,600

1,822

0.89

315,891

2,950

1.25

Other Borrowings

12,771

93

0.97

8,329

186

2.99

Total Interest Bearing Liabilities

287,371

1,915

0.89

%

324,220

3,136

1.29

%

Noninterest Bearing Deposits

89,799

95,328

Other Liabilities

2,149

2,556

Total Liabilities

379,319

422,104

Total Shareholders Equity

40,492

39,986

Total Liabilities and Equity

$

419,811

$

462,090

Interest Rate Spread

3.13

%

2.79

%

Net Interest Income

$

9,699

$

9,692

Net Interest Margin

3.36

%

3.08

%

(1)

Average
balances include nonaccrual loans, and are net of unearned loan fees of $164
and $242 at September 30, 2012 and 2011, respectively.

(2)

Interest
income includes fees on loans of $60 and $38 for the nine months ended
September 30, 2012 and 2011, respectively.

37

Net
interest income for the nine months ended September 30, 2012 and 2011 was
comparable at $9.7 million even though average total earning assets and total
assets decreased by approximately $35.2 million, or 8.4% and $42.3 million, or
9.1%, respectively. Interest income decreased 9.5% to $11.6 million for the
nine months ended September 30, 2012 compared to $12.8 million for the nine
months ended September 30, 2011 offset by a 38.9% decrease in interest expense
to $1.9 million from $3.1 million. The average interest rate on other
borrowings decreased from 2.99% to 0.97% at September 30, 2011 and 2012,
respectively. Average noninterest bearing deposits decreased by 5.8% to $89.8
million at September 30, 2012 compared to $95.3 million at September 30, 2011.

The
following table sets forth certain information regarding changes in our
interest income and interest expense for the quarter ended September 30, 2012
compared to the quarter ended September 30, 2011. For each category of interest
earning assets and interest bearing liabilities, information is provided on changes
attributable to changes in interest rate and changes in the volume. Changes in
both volume and rate have been allocated based on the proportionate absolute
changes in each category.

RATE VOLUME ANALYSIS

Three months ended
September 30, 2012 and 2011

Nine months ended
September 30, 2012 and 2011

Total
Change

Due to average

Total
Change

Due to average

(Dollars
in Thousands)

Volume

Rate

Volume

Rate

Days

Interest earning assets

Loans, net

$

(458

)

$

(336

)

$

(122

)

$

(745

)

$

(790

)

$

5

$

40

Investment securities

(233

)

113

(346

)

(399

)

384

(783

)



Federal funds sold

(48

)

(3

)

7

(69

)

(72

)

4



Other

4

(11

)

(37

)

(1

)

(2

)





Total

$

(735

)

(237

)

$

(498

)

$

(1,214

)

$

(480

)

$

(774

)

$

40

Interest bearing liabilities

Savings, NOW, money market

$

(117

)

$

(29

)

$

(88

)

$

(494

)

$

(84

)

$

(412

)

$

2

Certificates of deposit

(352

)

(268

)

(84

)

(635

)

(359

)

(281

)

5

Short term borrowings

(21

)

18

(39

)

(93

)

99

(192

)



Total

$

(490

)

$

(279

)

$

(211

)

$

(1,222

)

$

(344

)

$

(885

)

$

7

Changes in net interest income

$

(245

)

$

42

$

(287

)

$

8

$

(136

)

$

111

$

33

Provision
for Loan Losses

The
allowance for loan losses is a provision for loan losses charged against net
interest income. Loans are charged against the allowance for loan losses when
management believes that the collectability of the principal is unlikely. The
allowance is an amount that management believes is adequate to absorb losses
inherent in the loan portfolio, based on evaluations of the collectability of
loans, industry historical loss experience, current economic conditions,
portfolio mix, and other factors. While management uses the best information
available to make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic conditions.

Impaired
loans are measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or, as a practical expedient,
at the loans observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is impaired when it is probable the
creditor will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.

As
a direct result of these factors and analyses, the loan loss provision was $104
thousand for the three months ended September 30, 2012, compared to $550
thousand for the same period in 2011. For the nine months ended September 30,
2012 the loan loss provision was $1.5 million compared to $1.7 million for the
nine months ended September 30, 2011. Past due loans decreased by 11.8% from
$9.3 million at December 31, 2011 to $8.2 million at September 30, 2012. Past
due loans included several large loans that had matured, with outstanding
matured balances at
September 30, 2012 of $5.5 million. The Banks are in the process of reviewing
the loans. Loans categorized as substandard decreased 15.9% to $18.2 million at
September 30, 2012. As of September 30, 2012, 91.0% of the portfolio was
categorized as pass compared to 87.8% at December 31, 2011.

38

Noninterest
Income

Following
is a schedule of noninterest income:

Three months ended September 30,

Nine months ended September 30,

(Dollars
in Thousands)

2012

2011

2012

2011

Loan fee
income

$

37

$

12

$

60

$

38

Service
charges on deposit accounts

149

160

468

482

Cash
surrender value  life insurance

93

78

277

247

Other

7

12

87

181

Loss on sale
of assets

(236

)

(94

)

(126

)

(94

)

Gain on sale
of securities

371



1,280



Totals

$

421

$

168

$

2,046

$

854

For
the three months ended September 30, 2012, noninterest income increased to $421
thousand from $168 thousand for the same period in 2011. The increase was due
to a $371 thousand gain on the sale of securities and the increase in cash
surrender value of BOLI. The loss on sale of assets include the recognized loss
on the Crystal River branch, which is expected to close in January 2013, of
$250 thousand offset by a gain on the surrender of two BOLI policies owned by
Floridian Bank and the holding company.

Total
noninterest income of $2.0 million for the nine months ended September 30,
2012, was an increase of $1.1 million or 139.6% from the same period in 2011.
The increase was primarily due to a $1.3 million gain on the sale of securities
compared to $0 in 2011.

Noninterest
Expense

Following
is a schedule of noninterest expense:

Three months ended
September 30,

Nine months ended
September 30,

(Dollars
in Thousands)

2012

2011

2012

2011

Salaries and
employee benefits

$

1,378

$

1,716

$

3,608

$

5,031

Occupancy
and equipment expense

734

629

2,090

2,035

FDIC
insurance

159

43

498

472

Data
processing

460

343

1,245

1,077

Other real
estate expense

64

186

400

403

Professional
fees

240

256

679

751

Credit and
collection expenses

29

47

74

220

Core deposit
intangible amortization

48

48

144

144

Other
operating expenses

109

120

288

313

Totals

$

3,221

$

3,388

$

9,026

$

10,446

For
the three months ended September 30, 2012, noninterest expense decreased 4.9%
to $3.2 million compared to $3.4 million for the three months ended September
30, 2011. The decrease was due to a $338 thousand decrease in salaries and
benefits related to the deduction in staff during 2011 through both the closing
of several branches and the elimination of positions. FDIC insurance increased
$116 thousand due to a change in the calculation of premiums by the FDIC that
resulted in a one-time refund in 2011.

39

Total
noninterest expense of $9.0 million for the nine months ended September 30,
2012 decreased $1.4 million, or 13.6%, from the same period in 2011. The
decrease was due to the elimination and combining of senior executive positions
in 2011 and the reversal of deferred compensation expense, resulting in a 28.6%
or $1.4 million reduction in salaries and benefits costs. Credit and collection
expenses decreased by $146 thousand primarily due to a decrease in other real
estate owned.

Income
Taxes

We
file consolidated tax returns. Having incurred annual operating losses since
our inception in 2006, we have accumulated a net tax benefit over the past four
years. We have recorded a valuation allowance to offset the deferred tax assets
associated with the net operating loss carry forwards generated by our net
losses. Management determined no additional valuation allowance was required
and based on their evaluation of the deferred tax benefit and losses incurred,
elected to eliminate the carrying value of the deferred asset account. The
Company, however, retains the tax benefit should it be needed in future
periods. We did not recognize an income tax benefit or expense for the quarter
ended September 30, 2012.

Market Risk

Market
risk refers to potential losses arising from changes in interest rates, foreign
exchange rates, equity prices and commodity prices. We are primarily exposed to
interest rate risk inherent in our lending and deposit taking activities as a
financial intermediary. To succeed in this capacity, we offer an extensive
variety of financial products to meet the diverse needs of our customers. These
products sometimes contribute to interest rate risk for us when product groups
do not complement one another. For example, depositors may want short-term
deposits while borrowers desire long-term loans. Changes in market interest
rates may also result in changes in the fair value of our financial
instruments, cash flows, and net interest income.

Interest
rate risk is comprised of repricing risk, basis risk, yield curve risk, and
options risk. Repricing risk arises from differences in the cash flow or
repricing between asset and liability portfolios. Basis risk arises when asset
and liability portfolios are related to different market rate indexes, which do
not always change by the same amount. Yield curve risk arises when asset and
liability portfolios are related to different maturities on a given yield
curve; when the yield curve changes shape, the risk position is altered.
Options risk arises from embedded options within asset and liability products
because some borrowers have the option to prepay their loans when rates fall
while some depositors can redeem their certificates of deposit early when rates
rise.

We
have established an Asset/Liability Committee (ALCO) for each Bank, which are
responsible for each Banks interest rate risk management. We have implemented
a sophisticated asset/liability model at both Banks to measure interest rate
risk. Interest rate risk measures include earnings simulation, economic value
of equity (EVE) and gap analysis. We do not use derivative financial
instruments for market risk management purposes.

Gap
analysis and EVE are static measures that do not incorporate assumptions
regarding future business. Gap analysis, while a helpful diagnostic tool,
displays cash flows for only a single rate environment. EVEs long-term horizon
helps identify changes in optionality and longer-term positions. However, EVEs
liquidation perspective does not translate into the earnings-based measures
that are the focus of managing and valuing a going concern. Net interest income
simulations explicitly measure the exposure to earnings from changes in market
rates of interest. Our current financial position is combined with assumptions
regarding future business to calculate net interest income under various
hypothetical rate scenarios. The Banks ALCO review earnings simulations over
the ensuing 12 months under various interest rate scenarios. Reviewing these
various measures provides us with a reasonably comprehensive view of our
interest rate risk profile.

40

The
following gap analysis compares the difference between the amount of interest
earning assets (IEA) and interest bearing liabilities (IBL) subject to
repricing over a period of time. A ratio of more than one indicates a higher
level of repricing assets over repricing liabilities for the time period.
Conversely, a ratio of less than one indicates a higher level of repricing
liabilities over repricing assets for the time period. As indicated in our Gap
Analysis table, our one-year cumulative gap at September 30, 2012, was a
negative 6.70% compared to a negative 12.55% at December 31, 2011. The change in
our one-year cumulative gap is primarily due to long-term time deposits
maturing over the next 12 months.

GAP ANALYSIS

(Dollars
in Thousands)

Within
3 Months

4 To 6
Months

7 To 12
Months

Total
1 Year

Interest Earning Assets (IEA)

Loans

$

141,360

$

6,198

$

15,257

$

162,815

Investment Securities

2,408

1,726

2,645

6,779

Federal funds sold

2,525





2,525

Other investments

23,416



100

23,516

Total

$

169,709

$

7,924

$

18,002

$

195,635

Interest Bearing Liabilities (IBL)

Savings, NOW, Money Market

$

150,639

$



$



$

150,639

Time deposits

19,491

13,190

34,015

66,696

Other borrowings

4,252



850

5,102

Total

$

174,382

$

13,190

$

34,865

$

222,437

Period Gap

$

(4,673

)

$

(5,266

)

$

(16,863

)

$

(26,802

)

Cumulative Gap

$

(4,673

)

$

(9,939

)

$

(26,802

)

Cumulative Gap / Total Assets

(1.17

)%

(2.49

)%

(6.70

)%

IEA / IBL (Cumulative)

97

%

95

%

88

%

Financial Condition

Lending
Activity

The
loan portfolio consists principally of loans to individuals and small- and
medium-sized businesses within our primary market area of Central Florida. The
table below shows our loan portfolio composition:

(Dollars
in Thousands)

September 30, 2012

December 31, 2011

Commercial

$

40,111

$

44,833

Commercial
real estate

222,932

241,648

Residential
real estate

7,750

8,542

Consumer
loans

15,167

16,745

Total loans

285,960

311,768

Less:
Allowance for loan losses

7,820

6,566

Less:
Unearned fees

122

114

Net loans

$

278,018

$

305,088

Total
loans decreased by $25.8 million during the first nine months of 2012 due to
the payoff of several large loans. During the quarter, $717 thousand was
transferred to other real estate owned, write-downs totaled $596 thousand, and
approximately $1.5 million in net pay downs and payoffs. These decreases were
offset by new loans of $8.8 million. There were approximately $10.7 million in
nonperforming loans at September 30, 2012 compared to $8.4 million at December
31, 2011.

41

Real
estate and related activities have slowed significantly in our market area,
local unemployment rates remain above the national average, and real estate and
other asset prices have declined appreciably. This has resulted in a weak loan
demand in 2012 and 2011. Although the Company has seen an increase in loan
demand in 2012, it has been offset by pay-downs in the portfolio.

Investment
Activity

Investment
activities serve to enhance the overall yield on interest earning assets while
supporting interest rate sensitivity and liquidity positions. Securities
purchased with the intent and ability to retain until maturity are categorized
as securities held to maturity and carried at amortized cost. All other
securities are categorized as securities available for sale and are recorded at
fair value. Securities, like loans, are subject to similar interest rate and
credit risk. In addition, by their nature, securities classified as available
for sale are also subject to market value risks that could negatively affect
the level of liquidity available to us, as well as shareholders equity. A change
in the value of securities held to maturity could also negatively affect the
level of shareholders equity if there was a decline in the underlying
creditworthiness of the issuers and an other-than-temporary impairment is
deemed or a change in our intent and ability to hold the securities to
maturity.

As
of September 30, 2012, securities totaling $60.2 million were classified as
available for sale. During the nine months ended September 30, 2012, securities
available for sale decreased by $12.0 million as a result of lower deposit
balances, offset with a lower loan portfolio.

Deposits
and Other Borrowings

As
a bank holding company, our primary source of funds is deposits. Typically,
deposits are provided by businesses, municipalities, and individuals located
within the markets served by our subsidiaries. In addition, we accept a limited
amount of brokered deposits.

Total
deposits decreased $41.6 million to $352.1 million at September 30, 2012,
compared to $393.7 million at December 31, 2011, due to a decision to reduce
brokered deposits and pay lower interest rates on certificates of deposit. Core
deposits, which exclude time deposit, increased $14.6 million to $248.5 million
at September 30, 2012 from $233.9 million at December 31, 2011. Time deposits
decreased to $103.6 million from $159.9 million. The decrease in time deposits
is attributable to a $15.9 million reduction in brokered deposits with the
remaining decrease attributable to customers moving time deposits to the Banks
less restrictive core deposit accounts due to minimal differences in interest
rates.

Other
borrowings, made up of short- and long-term borrowings, decreased by $8.9
million to $5.1 million at September 30, 2012 compared to a balance of $14.0
million at December 31, 2011 due to a scheduled principal reduction on the
Clermont branch loan and a reduction in customer repurchase agreements. As of
September 30, 2012, other borrowings were approximately 12.6% of our total
shareholders equity.

Liquidity

Our
goal in liquidity management is to satisfy the cash flow requirements of
depositors and borrowers as well as our operating cash needs with
cost-effective funding. Our Board of Directors has established an Asset/Liability
Policy in order to achieve and maintain earnings performance consistent with
long-term goals while maintaining acceptable levels of interest rate risk, a
well-capitalized balance sheet, and adequate levels of liquidity. This policy
designates each Banks ALCO as the body responsible for meeting these
objectives. The ALCO, which includes members of executive management, reviews
liquidity on a periodic basis and approves significant changes in strategies
that affect balance sheet or cash flow positions.

The
primary source of liquidity is deposits provided by commercial and retail
customers. The Banks attract these deposits by offering an array of products
designed to match customer needs and priced comparable to our competitors.
Deposits can be very price sensitive; therefore, we believe that fluctuating
deposit offering rates to the top of the market would generate a larger inflow
of funds. In addition to local market deposits, the Banks have access to
national brokered certificates of deposit markets as well as deposit
subscription services. The Banks use these alternative sources of deposits to
supplement deposits particularly when the rates are lower than the local
market. These sources of deposit are limited by our policies to 25% of assets.
Further, access to these brokered deposits is limited by regulation to banks
that meet or exceed well capitalized definitions. In the event that the
Company would fall below well capitalized levels, regulators will not permit
any additional brokered deposits and would impose
deposit rate restrictions not to exceed published national rates. Overall
deposit levels are monitored on a constant basis as are liquidity policy
levels, which must be maintained at a minimum of 14% of total deposits. Sources
of these liquidity levels include cash and due from banks, short-term
investments such as federal funds sold, and our investment portfolio, which can
also be used as collateral for short-term borrowings. Alternative sources of
funds include unsecured federal funds lines of credit through correspondent
banks. The Banks have established contingency plans in the event of
extraordinary fluctuations in cash resources.

42

Operating
Activities

Cash
flows from operating activities primarily include net income (loss), adjusted
for items that did not impact cash. Net cash provided by operating activities
increased by $6.8 million to $4.3 million for the nine months ended September
30, 2012 compared to $624 thousand for the nine months ended September 30,
2011. The improvement was due to the Company achieving a $1.2 million profit
for the nine months ended September 30, 2012 compared to a loss of $1.4 million
for the nine months ended September 30, 2011.

Investing
Activities

Cash
used in investing activities reflects the impact of loans and investments
acquired for our interest-earning asset portfolios, as well as cash flows from
asset sales and the impact of acquisitions. For the nine months ended September
30, 2012, we had net cash flows provided by investing activities of $44.8
million, compared to net cash flows used in investing activities of $7.2
million for the nine months ended September 30, 2011. The change in cash flows
from investing activities was due to a decrease in net loans of $26.6 million
and a net decrease in investments available for sale of $12.4 million. The
Company also had $2.8 million in proceeds from the redemption of its BOLI
policies.

Financing
Activities

Cash
flows from financing activities include transactions and events whereby cash is
obtained from depositors, creditors or investors. For the nine months ended
September 30, 2012, we had net cash flows used in financing activities of $50.4
million, compared to net cash flows provided by financing activities of $9.7
million for the nine months ended September 30, 2011. The change in cash flows
from financing activities was primarily due to a $41.6 million decrease in net
deposit growth for the nine months ended September 30, 2012 compared to a $5.6
million increase in net deposit growth for the nine months ended September 30,
2011. In 2011, the Company offered a special promotion to increase time deposit
balances with no comparable offering during the first three quarters of 2012.

Capital Resources

The
assessment of capital adequacy depends on a number of factors such as asset
quality, liquidity, earnings performance, changing competitive conditions and
economic forces. We seek to maintain a strong capital base to provide stability
to current operations and to promote public confidence. As of September 30,
2012, the Banks exceeded the requirements contained in the applicable
regulations, policies and directives pertaining to capital adequacy to be
classified as well capitalized and are unaware of any material violation or
alleged violation of these regulations, policies or directives; however, the
poor loan portfolio performance and the related impact on earnings have
deteriorated our capital position. Our intent is to strengthen our capital
position, and both management and the Board of Directors have had exploratory
discussions to determine the availability and cost of additional capital. As of
September 30, 2012, Orange Banks Tier 1 leverage and total capital to risk
weighted assets met the ratios as required by its MOU. Based on these
discussions and the need to comply with the MOU, the Company may need to pursue
another capital offering within the next 12 months.

Key
to our efforts to maintain existing capital adequacy is the need for the Banks
to become profitable by focusing on increasing core earnings and decreasing the
levels of adversely classified and nonperforming assets. Management is
continuing to pursue a number of strategic alternatives to improve the core
earnings of the Banks and to reduce the level of classified assets such as
consolidating the Banks charters and redefining our credit organization. While
we have recently withdrawn our application to merge the Banks, we expect to
submit a new application to merge the Banks in 2013. Current market conditions
for banking institutions, the overall uncertainty in financial markets and the
Banks high level of nonperforming assets are impediments to the success of
these strategies. If current adverse market factors continue for a prolonged
period of time, new adverse market factors emerge, and/or the Banks are unable
to successfully execute plans in a sufficient and timely manner, it could have
a material
adverse effect on the Banks business, results of operations and financial
position, as well as result in further supervisory actions from our regulators.

43

We
offer a stock purchase plan to our employees and directors to purchase shares
of our common stock at fair market value. In 2011, employees purchased 911
shares valued at $5.50 per share, which were issued in March 2012. In 2010,
employees purchased 1,319 shares valued at $10.00 per share, which were issued
in March 2011.

In
2012, we filed a Form 15 to deregister our common stock under the Securities
Exchange Act of 1934, as amended (the Exchange Act). We expect that our
filing obligations under the Exchange Act will be automatically suspended once
we file our annual report on Form 10-K for the current fiscal year. We would
expect that going dark will not have a material impact on our ability to
raise capital because our stock is not listed on an exchange and is relatively
illiquid.

Holders
of our common stock are entitled to receive dividends when, as and if declared
by our Board of Directors out of funds legally available for that purpose. We
have not paid any dividends to our holders of common stock in the past and we
currently do not intend to pay dividends on our common stock in the near
future. In the event that we decide to pay dividends, there are a number of
restrictions on our ability to do so.

For
a foreseeable period of time, our principal source of cash revenues will be
dividends paid by the Banks to us with respect to their common stock. There are
certain restrictions on the payment of these dividends imposed by federal
banking laws, regulations and authorities. See the sections of our Annual
Report on Form 10-K captioned Item 1. Business-Regulatory Considerations  The
Banks  Dividends.

As
described in Note 9, we have adopted a certain board resolution and MOU in
consultation with our regulators. Pursuant to the resolution and MOU, we have
agreed to preserve capital by agreeing to place restrictions on our ability to
declare and pay dividends, issue debt, repurchase shares of stock, or make
other distributions. See Note 9 for further discussion.

Off-Balance Sheet Arrangements

We
do not currently engage in the use of derivative instruments to hedge interest
rate risks. However, we are a party to financial instruments with off-balance
sheet risks in the normal course of business to meet the financing needs of our
customers.

At
September 30, 2012, we had approximately $50.5 million in commitments to extend
credit and $2.5 million in standby letters of credit. Commitments to extend
credit are agreements to lend to a customer so long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Standby letters of credit are conditional commitments issued by
us to guarantee the performance of a customer to a third party. We use the same
credit policies in establishing commitments and issuing letters of credit as we
do for on-balance sheet instruments.

If
commitments arising from these financial instruments continue to require
funding at historical levels, management does not anticipate that such funding
will adversely impact our ability to meet on-going obligations. In the event
these commitments require funding in excess of historical levels, management
believes current liquidity, available lines of credit from the Federal Home
Loan Bank, investment security maturities and our revolving credit facility
provide a sufficient source of funds to meet these commitments.

Critical Accounting Policies

Allowance
for Loan Losses

The
allowance for loan losses is a valuation allowance for probable incurred credit
losses. Loan losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance. Management estimates the allowance balance
required using past loan loss experience, the nature and volume of the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
managements judgment, should be charged-off.

44

The
Banks began increasing its historical net charge off rate from a twelve to a
twenty-four month look back period during the second quarter of 2012.
Management determined, based on the current market conditions, that a
twenty-four month methodology would be a more appropriate indicator. The
change, which represented an 18 month historical look back period for the third
quarter, had only a minimal impact on the overall allowance calculation since
losses have been minimal, to date, in 2012.

The
allowance consists of specific and general components. The specific component
relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience adjusted for
current factors.

A
loan is impaired when full payment under the loan terms is not expected.
Commercial and commercial real estate loans are individually evaluated for
impairment. If a loan is impaired, a portion of the allowance is allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loans existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Large groups of smaller
balance homogeneous loans, such as consumer and residential real estate loans
are collectively evaluated for impairment, and, accordingly, they are not
separately identified for impairment disclosures.

Income
Taxes

The
Company accounts for income taxes according to the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
the enacted tax rates applicable to taxable income for the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation reserves are
established against certain deferred tax assets when it is more likely than not
that the deferred tax assets will not be realized. Increases or decreases in
the valuation reserve are charged or credited to the income tax provision.

The
Company recognizes a benefit from its tax positions only if it is
more-likely-than-not that the tax position will be sustained on examination by
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information.

The
periods subject to examination for the Companys federal returns are the tax
years subsequent to 2009. The periods subject to examination for the Companys
significant state return, which is Florida, are the tax years subsequent to
2008. The Company believes that its income tax filing positions and deductions
will be sustained upon examination and does not anticipate any adjustments that
will result in a material change in its financial statements. As a result, no
reserve for uncertain income tax positions has been recorded.

The
Companys policy for recording interest and penalties related to uncertain tax
positions is to record such items as part of its provision for federal and
state income taxes.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See
Market Risk in Managements Discussion and Analysis of Financial Condition and
Results of Operations, above, which is incorporated herein by reference.
Management has determined that no additional disclosures are necessary to
assess changes in information about market risk that have occurred since
December 31, 2011.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

As
of September 30, 2012, the end of the period covered by this Form 10-Q, our
management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
each concluded that as of September 30, 2012, the end of the period covered by
this Form 10-Q, we maintained effective disclosure controls and procedures.

45

Changes in Internal Control

Our
management, including the Chief Executive Officer and Chief Financial Officer,
has reviewed our internal control. There have been no significant changes in
our internal control during our most recently completed fiscal quarter that
could significantly affect our internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

We
are party to lawsuits arising out of the normal course of business. In
managements opinion, there is no known pending litigation, the outcome of
which would, individually or in the aggregate, have a material effect on our
consolidated results of operations, financial position, or cash flows.

Item 1A.

Risk Factors

In
addition to the other information set forth in this Quarterly Report, you
should carefully consider the factors discussed in Part I, Item 1A. Risk
Factors in our 2011 Form 10-K, as updated in our subsequent quarterly reports.
The risks described in our Annual Report on Form 10-K are not the only risks
facing us. Additional risks and uncertainties not currently known to us or that
we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.

Item 6.

Exhibits

(A)

Exhibits

2.1

Purchase and
Assumption Agreement, dated August 17,2012, by and between Old Florida
National Bank and Orange Bank of Florida  incorporated herein by reference
to Exhibit 2.1 of the Registrants Current Report on Form 8-K (filed
8/22/2012) (No. 000-53589)

Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned Chief
Financial Officer hereunto duly authorized.

FLORIDIAN
FINANCIAL GROUP, INC.
(Registrant)

By:

/s/ Jorge F.
Sanchez

Jorge F.
Sanchez

Executive
Vice President and Chief Financial Officer

(Mr. Sanchez
is the Principal Financial Officer and has been duly authorized to sign on
behalf of the Registrant)

Date:

November 14,
2012

47

Exhibit Index

2.1

Purchase and
Assumption Agreement, dated August 17,2012, by and between Old Florida
National Bank and Orange Bank of Florida  incorporated herein by reference
to Exhibit 2.1 of the Registrants Current Report on Form 8-K (filed
8/22/2012) (No. 000-53589)